Lightspeed Media Corp. v. Smith
2016 U.S. App. LEXIS 13195
| 7th Cir. | 2016Background
- Hansmeier, Steele, and Duffy (the Attorneys) brought mass John Doe suits on behalf of Lightspeed Media and sought ISP-held subscriber data via ex parte subpoenas; courts refused to compel production and the suits drew sanctions.
- The district court found the Lightspeed suit frivolous and imposed joint-and-several sanctions of $261,025.11 against the Attorneys.
- Defendants (including Anthony Smith) pursued contempt and discovery sanctions after the Attorneys claimed insolvency; third-party subpoenas to banks followed.
- Evidence later showed Steele and Hansmeier moved large sums from accounts around the time they claimed insolvency, and the Attorneys engaged in misleading communications with banks (faxing motions without file-stamps, misrepresenting stays).
- The district court (on reconsideration) awarded discovery costs and imposed a $65,263 contempt fine; Steele paid most of the discovery sanction and most of the contempt fine; Duffy died; Hansmeier filed Chapter 7 bankruptcy.
- On appeal the Seventh Circuit dismissed Hansmeier’s appeal for lack of standing, affirmed the discovery-sanction against Steele, and vacated the contempt sanction as criminal in nature because it was punitive and imposed without criminal-process protections.
Issues
| Issue | Plaintiff's Argument (Smith) | Defendant's Argument (Steele/Hansmeier) | Held |
|---|---|---|---|
| 1. Whether the district court abused its discretion by granting reconsideration of its prior denial of sanctions | Reconsideration was proper because Smith uncovered newly discovered evidence (bank records) showing concealment and misleading conduct | Reconsideration was improper because Smith should have obtained evidence earlier and court’s prior denial was final | Court: Reconsideration was proper under Rule 59(e); Smith presented newly discovered evidence and the Attorneys’ conduct had delayed discovery |
| 2. Whether Steele and Duffy engaged in discovery misconduct (misleading banks, obstructing subpoenas) | Banks were misled by attorneys’ faxes and cover letters that implied motions were pending or matters stayed, obstructing compliance | Attorneys argued they did not obstruct or that their communications were innocuous | Court: District court did not abuse discretion; factual record supports finding of intentional misleading and obstruction |
| 3. Whether the amount of discovery sanctions was excessive | Smith sought and documented compensable discovery costs tied to Attorneys’ obstruction and to the broader pattern of concealment | Steele argued costs before certain communications were unrelated to his obstructive acts and therefore excessive | Court: Affirmed sanctions; court may consider entire pattern of vexatious and obstructive conduct, not isolated acts |
| 4. Whether the contempt fine against Steele was civil or criminal and whether procedures used were adequate | Smith/ district court treated fine as civil and payable to Smith (thus remedial) | Steele argued the fine was criminal in nature and required criminal-procedure protections (due process) | Court: Fine was punitive/criminal in nature (flat, not tied to actual costs) and was imposed without required criminal procedures; contempt vacated |
Key Cases Cited
- Lightspeed Media Corp. v. Smith, 761 F.3d 699 (7th Cir. 2014) (prior Seventh Circuit decision upholding earlier sanctions and detailing the litigation pattern)
- U.S. Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U.S. 72 (1988) (appealability of sanctions against nonparties)
- Boyd v. Tornier, Inc., 656 F.3d 487 (7th Cir. 2011) (standard for Rule 59(e) reconsideration: manifest error or newly discovered evidence)
- Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980) (§1927 disallows recovery of total litigation costs; limited to excess costs caused by vexatious multiplication)
- Bagwell v. American Federation of State, County & Municipal Employees, 512 U.S. 821 (1994) (distinguishing civil and criminal contempt; penalties vindicating court authority are criminal)
- Hicks ex rel. Feiock v. Feiock, 485 U.S. 624 (1988) (tests for civil vs. criminal contempt; remedial v. punitive character)
- e360 Insight, Inc. v. Spamhaus Project, 658 F.3d 637 (7th Cir. 2011) (sanctions assessed in light of entire procedural history)
- Tamari v. Bache & Co., 729 F.2d 469 (7th Cir. 1984) (Rule 37(a) sanctions may encompass all expenses that would not have been incurred absent the opponent’s misconduct)